New Zealand economy is strong.

On July 28, 2005, just as Market: Asia Pacific was about to go to press, Bloomberg News reported that the Reserve Bank of New Zealand (RBNZ) would hold interest rates steady at 6.75 percent. The decision was expected.

Although the RBNZ is concerned about inflation - especially about predictions that it will rise above 3 percent soon - the Bank may have been influenced by a July 13, 2005 government report that showed retail sales were slowing and the Bank may not have wanted to tighten credit any further to jeopardize growth.

Bloomberg said slower retail sales suggested consumer spending could be affected by a rate rise. Bloomberg also reported that the eight economists it interviewed for its story predicted that inflation wouldn't go above 3.2 percent this year.

A July 5, 2005 story by TVNZ, citing information developed by Reuters, said that the Organization for Economic Cooperation and Development (OCED) was pleased for the most part with the performance of the New Zealand economy. In 2004, the economy grew 4.2 percent, according to International Monetary Fund (IMF) estimates, and the OCED said that might slow to 2.9 percent this year. The IMF is, by far, the most pessimistic about New Zealand's growth for 2005 saying that it will reach only 2 percent this year. The IMF prediction, however, was made back in September of 2004 and may not have taken into account subsequent stimulants to growth.

The OCED says that it expects New Zealand to recover from the 2005 slowdown and to grow at an average rate of 3.3 percent from 2006 through 2010. The OCED says 2006 inflation will grow at 2.8 percent, and an average of 2.2 percent through 2010.

Interestingly, TVNZ said that the country's strong consumer spending was stimulated by high immigration. Immigrants to New Zealand bought houses, and had a favorable impact on house prices. The surge in household formation also enhanced spending for durables and other consumer goods.

Consumer spending has also been supported by a favorable job picture. TVNZ also said that unemployment was near 20 year lows. For 2004, the IMF reported that the New Zealand unemployment rate was 4.6 percent, certainly a low for the past decade. The IMF is predicting that unemployment will rise slightly to 5 percent in 2005.

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